Is Cypress Semiconductor's CFO Telling You to Buy?

Famed money manager Peter Lynch told us executives can sell their stock for any reason but typically buy only for one: They think the price is going to go up!

Today I'm highlighting chip maker Cypress Semiconductor (NASDAQ: CY) , whose CFO recently bought nearly $200,000 worth of stock. These aren't option grants, either, but purchases made on the open market -- just like you or I would make.

Cypress Semiconductor snapshot

Market Cap

$1.4 billion

Revenue (TTM)

$832 million

1-Year Stock Return

(50%)

Return on Investment

6.1%

Estimated 5-Year EPS Growth

10%

Dividend/Yield

$0.44/4.6%

Insider

Brad Buss, CFO

Total Purchased

$193,800

Recent Price

$9.54

CAPS Rating (out of 5)

****

Source: FinViz.com. TTM = trailing 12 months.

Although following the lead of insiders can be profitable, I still recommend you do further due diligence to determine whether this stock would make a good addition to your own portfolio. So this isn't a call to buy, but simply the inside track on a company you might want to research further.

Green eyeshade types I particularly like it when a CFO buys stock in his company. If there's anyone in the business who understands how well it's running -- arguably even more so than the CEO -- it's the top finance guy. When I see him buying shares, I'm reminded of CNS, the maker of Breathe Right nasal strips, whose CFO began buying company stock after it was beaten down and continued to do so over a period of months. When that quarter's results came out, profit had tripled, and the stock jumped 12% in one day. It wasn't long before GlaxoSmithKline (NYSE: GSK) bought out CNS.

Of course, it doesn't always work out that way. Back in August the CFO of TETRA Technologies (NYSE: TTI) bought $150,000 worth of company stock at $6.68 per share. Today it trades for $5.85. RadioShack's (NYSE: RSHCQ) CFO did the same thing at the end of July, only to see the shares decline 17% since then.

The global financial crisis has led to a sharp curtailment of Cypress's business prospects. Third-quarter revenue tumbled 23% year over year, while profit margins fell across the board. Its TrueTouch touch screen controller business is one of the few bright spots in its operations: Revenue has grown from the year-ago period, reflecting the strength of the mobile-phone industry and the growth in automobiles. Tesla (NASDAQ: TSLA) , for example, just selected Cypress' technology for use in its Model S electric-vehicle infotainment system.

Patent pendingYet Cypress can't escape the macro issues that weigh on the chip maker industry, accounting for much of the stock's slide. Also pressuring shares was a decision by an International Trade Commission's administrative law judge that found no basis for its patent infringement case against GSI Technology (NASDAQ: GSIT) , a semiconductor company that counts Cisco (NASDAQ: CSCO) as its biggest customer. Cypress was apoplectic over the decision and declared that it will seek a review by the full commission.

With Cypress' shares trading at such lows, it could be that the CFO is drawn by cost-containment initiatives that have allowed the company to minimize the adverse impact on its revenue. Guidance calls for revenue to continue sliding but says gross margin will remain flat.

Cost-cutting is good up to a point, but then the business has to turn around. Cypress carries a four-star rating on Motley Fool CAPS, the 180,000-member investor community where informed opinion is translated into stock ratings of one to five stars. Investors' continuing high opinion of the chip maker suggests that they agree with the CFO that there are better times ahead.

But tell me in the comments box below whether you agree with the assessment that Cypress Semiconductor can overcome global financial crises and rivals treading on patent-protected intellectual property.

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Comments from our Foolish Readers

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Similar article to what another Fool posted yesterday - http://bit.ly/T0dj0b so I'll give the similar comment I did:

Good article. Personally, I like CY for the medium to longer-term.

All technology stocks are being destroyed, however, CY and a number of others present excellent opportunities at amazingly low historical prices. With CY, not only do you have the insider purchases, but here's a technology stock that's paying dividends! What more can you ask for? You have the growth/risk component of a technology stock coupled with the stability of a fixed income investment. There are other great technology stock opportunities presenting themselves now, possibly at never-to-be-seen again prices/valuations. Others like Intel, Dell, Microsoft, Hewlett-Packard. These are not companies that are going away, yet they're all paying dividends up in the 4% range while trading at multi-year lows. These are paying more than money market and bond funds.

If the insider purchases make the impact for you, look at Dell and Hewlett-Packard, as both have had large insider purchases over the past 2 years.